Crypto Futures Trading vs Margin: Ultimate Comparison

Bert Maxwell's picture
Futures and margin trading are the main strategies in the cryptocurrency market. They allow investors to profit without considerable risk to their funds. Both options involve leverage, which confuses, especially among beginners. Therefore, it is essential to understand how trading crypto futures differs from a margin strategy to make the most convenient and profitable option.
Crypto Futures Trading vs Margin: Ultimate Comparison

What is margin trading, and how does it work?

First, let's figure out what is margin trading crypto. It is a strategy in which an investor borrows funds from a broker to buy or sell an asset. Also, the platform on which you conduct financial transactions can give you a loan. Margin is a percentage of the total value of the transaction, which must be repaid along with the debt. Depending on the conditions, the payment of interest can be a one-time payment for the entire transaction or daily.
The percentage of trading depends on:
• exchange conditions;
• asset;
• a broker who gives credit for the operation.
The margin can be from 10% to 50% or even more. It all depends on the terms of the deal.
The main advantage of this strategy is the ability to make a good profit in a reasonably short period with a small starting capital. Margin trading makes it possible to keep a minimum amount on the exchange while not reducing trading volumes. It is a huge plus because there is no risk of losing capital due to wallet hacking.
The strategy gives the investor access to many assets without investing large sums. For trading, depositing only the margin cost is enough, after which you can start working with cryptocurrencies.
It is also worth noting that margin trading does not have an endpoint. A position can be open for a long time if the investor has enough funds to pay the margin regularly.
The combination of long and short positions helps investors maintain the value of their cryptocurrency portfolio. When the value falls, you can close the work to reduce possible markets. If there is a forecast for a price increase, open an extended place to get the maximum profit.

What is futures trading, and how does it work?

Now it's worth understanding what futures trading means. With this strategy, the investor and the seller enter into a contract to buy or exchange an asset in the future at a specific rate. The price is usually determined by the market's state and the assets' characteristics. Most futures contracts have the same terms and conditions.
The primary condition of futures trading: the investor must pay a certain percentage before the completion of the transaction. It guarantees the seriousness of intentions and confirms that the financial transaction will occur on the specified date.
The advantage of futures trading is that you can get a reasonably high profit from changes in the market without any investment. It is a good tool for those who want to benefit from short-term price changes in the cryptocurrency market.
In futures trading, securitized participants exchange contracts, not assets. Currency exchange takes place on the date specified in the contract. This is a somewhat risky strategy. After all, the final exchange takes place at a previously agreed cost. If the investor was sure that the tokens would cost quite a lot, but the price fell due to market instability, the exchange will still be carried out according to the conditions specified in the contract.
Futures trading allows investors to hedge their portfolios even in volatile market conditions. Due to fluctuations in value, you can get a significant benefit from trading contracts. Conducting thorough analytics and understanding the vector of asset value movement is essential.

Differences: margin vs futures trading

There is a comparison of margin vs futures crypto; they seem to have a lot in common. In both cases, trading requires leverage, profit can be obtained without significant investments, and keeping money on the exchange is unnecessary. The main differences between strategies in:
• mechanics;
• assets.
Futures trading is working for the future. The investor receives assets after the date specified in the contract. The investor pays only a percentage, after which the contact enters the trade. But it should be borne in mind that to maintain the contract, and the lender may charge an additional fee to minimize possible risks.
Cryptocurrency margin trading works differently. The buyer receives credit money, after which he immediately starts working on the market.
Futures assets are subscribed for commodities, currencies, and stocks. Margin trading is available for different types of investments. It is only essential to find a platform that supports this strategy.
Margin and futures have differences in the cost of the interest rate. An investor must pay the margin cost regularly if he opens a long-term operation. As a result, the amount of interest can be equal to the asset's value. When trading futures quarterly, you can avoid additional waste. But it is essential to understand that the exchange establishes the terms of trade and the conclusion of contracts. Therefore, you should carefully study all the conditions before you start trading.
Another difference between margins and futures is the attention of the trader. When buying a contract, the investor does not need to monitor the position of the position constantly. With long-term margin trading, you must continually monitor market fluctuations and the rate of the selected asset.
Futures and margin trading differ in cost. The margin is based on the spot prices of the cryptocurrency market. The investor operates with the current rate when opening the position. Futures trading takes into account the costs of cryptocurrency and changes in trends in supply and demand.

Risks: margin vs futures trading

Margin and futures trading share several risks. Principal: both trading options use leverage. It gives more opportunities to make a profit. In this case, there is a considerable probability of going negative. The cryptocurrency market can be very volatile and unpredictable, so investors may have to use additional funds to cover the costs.
Futures trading has more risks than margin trading. It is due to market instability. The costs can significantly exceed the value of the contract and the initial deposit that the investor was counting on. Margin has less risk in this regard. To maintain the position, you need to pay interest regularly. As a result, the total value of income may exceed the benefit from the purchase of assets.
The margin call is another risk to be aware of. The lender may ask to increase the deposit amount to maintain the position. It happens when the value of an asset drops to its lowest position. In this case, the investor must sell the assets or deposit an additional amount for payment.
The lender can close the position if he sees that the investor is not fulfilling his obligations. In this case, he can liquidate not only the transaction but also freeze all the funds that are on the margin account. The same risks exist in futures trading. The creditor may terminate the contract if the investor fails to fulfill its obligations.